Why is Dubai so Rich?

Dubai’s Richness

Ostentatious, exaggerated, colossal. It seems that Dubai always aspires to carry out the largest, most luxurious and most eccentric projects in the world. In this small territory, we can find the tallest building, the most luxurious hotel, and even the largest international airport on the planet.

Credit: Youtube

Located in a strategic enclave at the mouth of the Persian Gulf, the growth process of Dubai is one of the fastest in human history.

In just over 20 years it has gone from being a remote and lost enclave in the desert to become one of the world’s great capitals. In this period of time the emirate of Dubai has multiplied by four its population, by nine the number of visitors, and by eight the size of its economy, But, Having said that, the question is: how has all this development been achieved?

Credits: CNBC.com

Has it all been just a matter of oil?

Dubai is one of the seven emirates that make up the United Arab Emirates. We could describe its government as an Islamic autocracy that restricts a large part of its people’s civil liberties. However, if we compare it with its neighboring countries, Dubai is by far the most open place in the Middle East. Want some examples? Well, here women can drive, the veil is not mandatory, you can buy pork at the supermarket, and even alcohol is not hard to come by.

Yes, things are starting to change, and in a way, I think we could refer to this city as a kind of oasis in the middle of the desert. And, as you can imagine, all of this change has had its reward. And, well, it might just surprise you…

Did you know that Dubai is already the fourth most visited city in the world (when it comes to international visitors) and that it surpasses epicenters of tourism and global trade such as New York, Hong Kong or Singapore?! Well, it totally is, and this is something that surprises a lot of people! Of course, there’s one thing we have to be clear on here, Dubai does not aspire to be the freest place on earth, but they do want to become the richest.

Examples of opulence in this place are so evident that it is not strange to see the Dubai’s police patrol the streets in Ferraris or Lamborghinis. Where else in the world could you possibly see something like this? Maybe at this moment some of you are thinking that all this exuberance has a very easy explanation: oil.

Credits: Green Prophet

Could it be that Dubai is nothing more than a dream of sheiks that are financed with petrodollars? Well, although we can not deny the influence of black gold, the truth is that the real the key is very different. The great secret of Dubai is not oil, but its commitment to trade. Don’t believe me? Well, let’s dive a little deeper…

Lets go Deeper

At the end of the 1950s, important oil deposits were discovered in the vicinity of Abu Dhabi, the capital of the Emirates. Be careful here, because we are not talking about a small discovery, but an about a huge amount of oil. To give you an idea, it is estimated that the oil wealth of the Emirates – their proven reserves – is even greater than those of all Russia. However, in the case of Dubai, it was a bit different.

It is true that this territory was also graced with the fortune of black gold … But its authorities soon realized that their reserves were much smaller than those of their compatriots in Abu Dhabi. In fact, although it may surprise us, oil today accounts for less than 1 in every 100 dollars produced by Dubai’s economy… You’ve probably heard about how important it is to diversify an economy, right? Well, that is precisely what Dubai did: overcome dependence and addiction to oil.

Old Dubai

Now, this is very easy to say, but, The question is: How did they do it? What did Dubai do to achieve such development and achieve a higher standard of living even compared to its oil-rich neighbors?

Basically, what it did was attract multinationals and professionals from all around the world. To achieve this, the first thing they did was to bet on a low tax policy. Look, in Dubai, they do not have the income tax, the tax on profits is practically non-existent and currently, purchases are not taxed either – although the latter is about to change. As a result of a joint agreement of all the member countries of the Persian Gulf Cooperation Council, a tax on purchases will soon be launched. However, the rate will be around 5%, far from the rates of more than 18% so common in developed countries.

And, of course, in case you are wondering, in Dubai there are no taxes on gasoline either. Yes, I know. It almost seems like we are talking about another planet. But do not think that low taxes are the only strategy Dubai has followed, not at all. Second, and perhaps even more important than taxes, Dubai has resorted to an instrument known as “Special Economic Zones,” although here they are somewhat different from what we can find elsewhere. In Dubai, these special areas, in addition to having tax benefits, even have their own regulations – almost laws – which, as you can imagine, are always focused on promoting business activity.

Dubai Businesses

Precisely, thanks to having specific rules, companies can escape the rigidity of legal systems that are inspired by sharia law, something that applies, of course in the rest of the Emirates. We can find a good example of this model in the so-called “Dubai International Financial Center”, which is almost a state within another state. Look, this Financial Center has its own judicial system – chaired by the way, by a British judge, with its own official language, which is not Arabic but English, and has even replaced the local currency with the US dollar.

In this way, a financial institution, a bank, for example, can do business as if it were in Manhattan but benefiting from the tax advantages of Dubai. Not a bad deal, right? So, now we can understand how Dubai has managed to attract the most of the 25 largest banks in the world. But … This is not all. Along with low taxes and Special Economic Zones, Dubai also opted for a very high degree of immigration freedom. The result? 96% of its inhabitants have been born abroad. But wait, because there’s more… To further boost foreign investment, at the beginning of this century the Dubai authorities made an unprecedented decision for this corner of the world.

BREAKING MOLDS

In 2002 the government of Dubai approved a risky decree that allowed any foreigner, regardless of their religion, to make real estate investments. At that moment the authentic boom began. Dubai was full of buildings and large projects: hundreds of skyscrapers, gigantic shopping centers, and even the famous artificial islands. Now the demand for Dubai become global. It’s a fact that since 2002, Dubai has experienced real estate development comparable only to that of Shanghai, a city with 13 times more inhabitants. Because another one of the most surprising things about Dubai is that it has less than 3 million inhabitants…

Despite this, where before there were only a handful of skyscrapers, thanks to this decree there are now hundreds and huge projects are announced one after the other… be its new skyscrapers, Ferris wheels or theme parks. One of these latest projects, by the way, is known as “The Mall of the World”, a gigantic space destined to become the largest shopping center in the world, and which will even house its own cultural district with dozens of theaters and cinemas, one hundred hotels, and the largest indoor theme park in the world.

Dubai

The project has been presented as the world’s first city with a temperature controlled environment! Well, all these measures have made Dubai a place where it is easy to do business and have turned this emirate into a commercial, touristic, financial, logistical, and even industrial power. Yes, anyone who thinks that all this Dubai thing is only about banks and hotels is very wrong… Nowadays, Dubai, thanks largely to its modern ports and special zones, is the third largest re-exporting power in the world and its industrial production exceeds 50 billion dollars each year. This is what explains why its neighbors are uneasily watching any fall in the price of oil, while the government of Dubai continues to carry out large projects. It is true, from a strictly political point of view there are still many reprehensible elements when it comes to its religious, social or human rights issues. There are, for example, the painful conditions suffered by many construction workers from countries such as India, Bangladesh or Pakistan. Of course, we can not ignore this reality, but we can not paying attention to the achievements of this emirate.

Old & New Dubai

Among other things because thanks to this, Dubai has managed to influence the policies its neighbors are implementing and encouraging them to reduce their dependence on oil. Dubai is, quite simply, a great model. There is, for example, the new Saudi Arabia of Mohammed Bin Salman, of which we have already spoken about in a previous video. Anyway, I think this case puts a very important question on the table: Is it possible to reconcile the absence of civil rights with sustainable economic growth over time? History and empirical evidence seem to show that it is not the situation, but in a world increasingly pressured by very high taxes and regulations of all kinds, Dubai’s authorities seem intent on demonstrating that this time it will be possible.

Dubai Buildings

At the moment, its commitment to free trade and investment, and its policies aimed at strengthening legal security, ease of doing business and keeping taxes low, have been superlative. If anything, Dubai shows us that competitiveness and trade tend to have better results in terms of development than protectionism or subsidies. Many rulers should pay attention to the successes of this oasis in the desert. But having said that, now it’s your turn.

Do you think the Dubai model will make the Middle East a freer place? Leave your answer in the comments below.

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Why Windows Phone Failed

Windows Phone: a product with so much potential that had everything going for it, and yet one that failed spectacularly. Despite the billions of dollars and the priceless connections of Microsoft, the Windows Phone never took off and would go down in history as one of Microsoft’s most expensive mistakes.

We’re gonna look at the reasons behind its failure and the actions Microsoft could’ve taken to possibly prevent it.

When Steve Jobs announced the iPhone in 2007 he took the smartphone world by storm. Up until then, smartphones had a big problem: they had small screens with interfaces that were hard to navigate, and the reason for that was because half of the phone was occupied by a keyboard with tiny buttons you could hardly press with any precision at all.

Apple unveiled iPhone in 2007

What Steve Jobs showed to his ecstatic audience was a game changer, but it wasn’t just Apple fans there were watching. The engineers at Google, which for the past two years had been building a smartphone of their own, had to scrap their entire project and to start over with a touchscreen design. Their final product, Android, would arrive more than a year later, at which point the iPhone had taken the smartphone crown.

The iPhone’s model was built on exclusivity: it was entirely produced by Apple to establish maximal control over the user experience and the quality of the product, which allowed Apple to charge a premium for their phones.

To succeed Android would have to adopt a different strategy: instead of going for exclusivity, Google tried to be everyone’s friend, partnering up with as many phone manufacturers as possible with the selling point of their phones being the fact that they were cheap, yet functional.

For a time, the smartphone world was in balance, with Android and the iPhone occupying very distinct segments of

the market. And yet, this balance would soon be disturbed by another tech giant, Microsoft.

Now, out of the three companies, it was actually Microsoft that had the most experience with mobile devices.

Back in 1996, Bill Gates unveiled what he called the handheld PC, which was really more of a tiny laptop. The operating system it ran was known as Windows CE, which was basically Windows 3 modified to function on the lowest specifications possible.

Over the next decade, Microsoft would add features and develop this product line extensively, making another 6 full releases. Between 2006 and 2008 Microsoft’s mobile devices claimed a 15% market share, greater than any of their competitors except Symbian by Nokia.

But this success is exactly what blinded Microsoft to threat of the iPhone.

When Steve Ballmer, the CEO of Microsoft at the time was asked about the iPhone his reaction, he was like that iPhones don’t have keyboards which will not make them good email machine. Also said that $500 for iPhone is not customer friendly.

When he was asked “How do you compete with iPhone?”, he replied ” Right now we’re selling millions and millions and millions of phones a year. Apple is selling zero phones a year.”

We can clearly see the stark difference between the two men: the reporter very clearly sees the innovations

of the iPhone as a threat to the old smartphone establishment, but Microsoft’s CEO can barely look past the sales numbers. And just in case you’re thinking he’s an exception, the CEOs of Blackberry and Palm were equally skeptical of the new iPhone.

It took Microsoft a full year of declining market share to finally realize that something had to be done. Unlike Microsoft, Blackberry’s sales were still increasing, which gave them a sense of confidence they never recovered from.

Now, as they say, it’s better late than never and when Microsoft finally got around to it, their development was actually pretty fast.

Microsoft began developing a touchscreen-based mobile device in late 2008 and it took them only two years to get it ready for market. What Steve Ballmer unveiled was indeed a very unique product whose advancement of smartphone design isn’t really widely recognized, but it should be. At a time when the iPhone and Android were stuck with static icons, the Windows Phone gave you tiles with live information.

Microsoft unveiled first Windows phone in 2010 at MWC

Overall, critics had much to praise: in terms of design the Windows Phone user experience was right up there next to Apple and because Microsoft had very strict requirements for the hardware used by phone manufacturers, all of the early Windows Phones were very powerful machines for their time. And yet, Microsoft ran into a big problem very early on.

Microsoft was trying to do something very difficult: it was emulating Apple in trying to establish strict control over the user experience and hardware, but unlike Apple, it wasn’t actually making its own phones. This approach made the Windows Phone a very refined product, but the degree of control Microsoft wanted to be made working with them much more difficult for phone manufacturers compared to working with Android.

Unsurprisingly, most phone manufacturers decided to partner up with Google, which left Microsoft in a very bad position: it had a great product and no one to make it. The only saving grace for Microsoft was a lucky connection: when Nokia replaced their CEO in September 2010, the new guy, Stephen Elop, was a former Microsoft executive and the first item on his agenda was to try to restore Nokia’s declining market share by abandoning Symbian and pivoting towards Windows Phone.

Now, you can tell that this was a very premeditated plan because of this massive transition, during which Nokia completely changed their product offerings, happened in the span of a single year. Nokia started selling their first Windows Phone in November 2011 and I can tell you right away that this was possible thanks to the billions of dollars Microsoft poured into Nokia as “platform support payments”.

Nokia was supposedly paying Microsoft a licensing fee, but in reality, it was actually getting $250 million back from Microsoft every quarter, which more than made up for their expenses. Of course, the other phone manufacturers knew that this was happening, which pushed them even farther away from Microsoft.

After all, why would they fund their own development and pay a licensing fee to Microsoft, when Nokia was getting it all for free?

Effectively, Microsoft had gone all in with Nokia and there was no going back. But sadly for Microsoft, it was far too late. By the time Microsoft solved its production issue, four years after the introduction of the iPhone, it had fallen to a 2% market share. Nobody was developing applications for the Windows Phone and why would they, considering that Android and iOS were clearly the winners here.

For its first three years, the Windows Phone App Store was empty: it didn’t have Instagram, it didn’t have YouTube, it barely had anything. By 2013 the stock price of Nokia had fallen by 75% at which point angry shareholders were threatening to just fire Stephen Elop and get rid of Microsoft altogether.

In the end, that didn’t happen, Microsoft instead just purchased Nokia’s mobile phone division for $7.2 billion in 2014. Here’s the funny thing though: the very next year Microsoft wrote off their investment for $7.6 billion, and then to top things off they fired almost 8,000 employees. Microsoft kept Windows Phone on life support until October 2017, but it was clearly dead a long time before that.

And yet, it’s easy to imagine the different path Windows Phone could’ve taken had it only not been as greedy with its original philosophy. Had Microsoft been willing to compromise on its control over production, it would’ve

easily convinced the big manufacturers to use Windows Phone instead of Android.

After all back then Google had practically no ecosystem to speak of, while Microsoft had been a software titan for decades.

This was how the Windows Phone ran the path for its downfall.

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Why is Norway Richer than UK (United Kingdom)?

Great Britain and Norway: the two countries with the biggest reserves of oil in the North Sea. This key strategic resource has been a blessing for Norway, but its impact on the UK has been much more questionable.

In this article, we’re gonna look at how the discovery and exploitation of the same resource resulted in drastically different effects on these two European countries.

Up until the Second World War, digging for oil on the coasts of Western Europe was a futile endeavor. Pretty much every country had tried it, of course, but the numerous wells that had been dug produced less than a hundred barrels per day on average: completely insignificant compared to the vast oil fields of the Middle East.

The North Sea’s oil wasn’t discovered until the 1960s, and unsurprisingly before that Norway wasn’t nearly as wealthy as it is today.

Before the Second World War, the backbone of the Norwegian economy was fishing and shipping, which of course they were very good at having had centuries of experience.

The British, meanwhile, were busy doing their whole empire thing. As the leading naval power in the world, they relied heavily on oil, but one of the major problems with that was the fact that Britain didn’t have a lot of reserves itself.

Instead, it had to rely on imports, which is why it supported the global expansion of Shell and BP, especially in the Middle East.

During the first half of the 20th century, no one thought the North Sea would be a worthwhile place to extract oil. It was a dangerous and difficult task to even try to search for it there, which is why the extent of its reserves was largely unknown.

Image Courtesy: Business Casual

In 1958 the Norwegian government itself rejected the possibility of finding oil, but just one year later a monumental discovery changed the outlook of the entire industry.

In the northern part of the Netherlands, Shell had been looking for oil. They didn’t find any, but in one of their wells, they found natural gas at large quantities. Nothing groundbreaking so far, but when they dug a few more wells in the area they discovered more gas at the same depth; in other words, they had stumbled upon a giant gas field.

As it turns out, the one they found was the largest one in Europe, but what made it truly significant was its implication for the North Sea.

You see, the geologies of both areas were very similar so finding gas in the Netherlands meant that there might be oil under the North Sea.

The oil companies scrambled and began their first explorations in 1962.

Norway didn’t start giving out licenses until 1965, but they were in no rush.

The stormy weather and still developing technology meant that whatever oil could be found was going to be very difficult to extract. The drilling rigs had to withstand 15-meterwaves and winds of up to 110 km/h, so unsurprisingly it took a few years and several deadly accidents before the oil could start flowing.

The first major oil discovery was made in 1969 on the Norwegian side.

Then, in a mad streak of luck, the British discovered the largest field in the entire sea on their first try just a year later.

In 1975 Queen Elizabeth herself would inaugurate the flow of oil from that field and this gesture symbolized a new opportunity for both Great Britain and Norway to benefit from this new resource.

But the way both countries approached their newfound wealth was radically different. The Norwegians could afford the luxury of being patient. Their political situation was one of stability: their leading Labor party had been the largest one since 1927 and is the one responsible for the welfare state and their high taxes.

In other words, they had no pressure to immediately spend the oil profits to stimulate the economy in the hopes of ensuring their reelection.

Image Courtesy: Business Casual

On top of that, the government’s attitude towards private companies was aggressive: they only allowed a 50% ownership stake in any given well, with the rest being owned by the state itself.

In 1972 the Norwegians went a step further, creating an oil company (STATOIL) entirely owned by the state, which would then compete directly with foreign companies.

Norway was effectively double dipping: not only did it tax the oil industry excessively, but it also owned a big chunk of it. But what’s really smart is what the Norwegians did with all that money: they not only saved it but also started investing it.

In 1990 they created a special fund for exactly this purpose whose growth rate ever since has been nothing short of exceptional.

They put most of their money in stocks and bonds, with a dash of real estate sprinkled on top, and the results speak for themselves.

The Norwegian fund is the largest sovereign wealth fund in the world and it even passed a trillion dollars in market value in September 2017.

And keep in mind, that’s a trillion dollars spread out over just 5 million people. So by all accounts, the Norwegians handled their oil boom perfectly. But the same cannot be said for the British.

The surge of oil profits for Britain coincided with the rise of Margaret Thatcher.

She came into power in 1979 and instead of setting up a fund to invest these new profits, she used that extra money to make radical reforms to the British economy.

She started a wave of mass privatization of companies that were otherwise profitable and made large cuts to income taxes in order to revitalize an otherwise stagnating economy.

Her policies were successful in that regard and resulted in large economic growth, but these benefits were temporary.

Unsurprisingly, when the revenues from oil started declining, Margaret Thatcher’s house of cards came crumbling down.

In essence, the UK and Norway took opposite approaches to their oil money. The British blew it on tax cuts, while the Norwegians invested it and grew it to the point where this tiny nation of 5 million people is the largest shareholder in Europe.

Norway is a perfect example of why investing is smart and that’s a lesson we can all use.

SoftBank to acquire majority stake in WeWork.

SoftBank a Japanese telecoms and Internet Company, which is very intimate and well known for funding and acquiring stakes in various Multi National Companies. SoftBank is about to take over around 50 percent of the company WeWork.

WeWork is an American company founded in 2010 by Adam Neumann and Miguel McKelvey that provides shared Workspaces and Offices to Technology Startups and services for entrepreneurs, freelancers, and startups, small and large Businesses.

SoftBank shares fell 5.4 % and suffered their biggest one-day drop in nearly two years on Wednesday (10 Oct 18′) partly on concerns about the prospects of eight-year-old WeWork whose outlook is tied closely to the ups and downs of the real estate market. Recent technology sector weakness also weighed on SoftBank’s shares, traders said.

One of the sources told that the pricing and other details of WeWork investment are yet to be firmed up and the second source said Softbank is in talks to take a major investment in WeWork.

SoftBank and its giant Vision Fund invested about $4.4 Billion August 2017 on WeWork and hold 2 board Seats in the Company. And Owns about 20 percent of the company.

Earlier the Wall Street Journal reported Softbank’s investment would be between around $15 billion to $20 billion and is most likely to come from the Softbank’s giant Vision Fund. Earlier June Journal says that the smaller Softbank investment discussion valued WeWork at up to $40 Billion.